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“Crisis brings opportunity and change” is one of the most widely used expressions in the financial world, but in the case of the Brazilian aluminum industry, it sums up the current situation perfectly. The “change” referred to would require returning to the situation of only a few years ago.

It’s not news that Brazil is enduring the worst economic depression in its history – the country’s GDP shrunk 4% in 2015 after staying flat in 2014, and is expected to fall another 3% this year. How this crisis has impacted the local aluminum demand is truly astonishing.

The recession (deepened by the political turmoil which redounded in the impeachment of Dilma Rousseff) severely harmed activity in the automotive and construction sectors, the second and third largest aluminum consuming sectors in Brazil, only behind the packaging segment.

To understand the new dynamics it is important to be aware of the past situation. It was mid-2013 when S&P Global Platts began receiving calls from market participants warning that smelters would soon start to close in Brazil due to the high smelting costs leveraged by the hike in energy prices, and that the market needed a local premium reference for primary aluminum. At that time, local P1020 production was already showing signs of weakness, imports were stabilized and Brazil has established itself as a net exporter of ingots.

A year later in 2014, soon after Platts launched the assessment, the country quickly became a net importer of primary aluminum. With domestic energy costs reaching record highs, with Novelis and Alcoa closing three smelters in total, imported metal started driving supply,while exports began drying up.

By 2015,only producers left were CBA, which reduced its output dramatically (and boosted its own-generated energy sales) and Albras, which sent half of its production to Japan owing to the contract between Hydro and the Nippon Amazon Aluminium consortium, who jointly control the plant.

By 2016, the recession had deepened causing several industry closures and reducing energy consumption. At the same time, a much stronger than expected rainy season increased the utilized capacity of domestic hydroelectric plants, which generate around 70% of the country’s energy.

Lower demand, coupled with abundance of hydroelectric power pushed electricity costs downwards, while the devaluation of the Brazilian Rea...